Key Market – Angola

With limited natural gas infrastructure in most areas of the country, the use of LPG as a ‘bridging’ fuel presents a strong opportunity in the short term

Headlines on the outlook for LPG Power Generation in Angola:

Ambitions centre around the expansion of hydro and LNG, but there may be room for LPG to compete against diesel generators in areas that continue to be off-grid.

Although regulatory changes are creating a more stable business environment, Angola continues to have problems that may inhibit LPG investment.

Below, we discuss the key factors that influence the outlook for LPG Power Generation in Angola in more detail.

Energy prices – Steep diesel price increases may favour LPG in the short term, but the low price of LNG relative to LPG may be hard to compete against

Diesel, traditionally the dominant generation fuel in Angola, is becoming less economically attractive since fuel price subsidy reforms starting in 2014, prompting an almost four-fold increase in its price over 2015. The LPG price was also affected by the reforms, increasing by 22% over the same period. This is part of the government’s plan to progressively eliminate oil and gas price subsidies. The increase in price for diesel is prompting businesses and residents who rely on isolated generators for power to explore alternative solutions.

The LNG currently produced by the Angolan LNG terminal at Soyo in the very north of the country is the most economical alternative to diesel, prompting the government to focus its efforts on the conversion of 300 MW of existing diesel generation to LNG fuel based by 2025. Heavy fuel oil (HFO) is also a very cost competitive alternative to diesel as Angola produces a greater quantity than it consumes and can be used in around 400 MW of the diesel engines already installed. Relative to these alternatives, LPG is an expensive option for electricity generation in Angola. However, LPG will also be produced in Soyo’s terminal, and may therefore represent a significant cost reduction relative to diesel for the smaller stock of backup generation that the government foresees it will require out to 2025.

Electricity & natural gas grid infrastructure – Plans to rapidly expand the reach of the electricity grid to meet new demand and the replacement of diesel could provide opportunities for LPG if the focus shifts away from LNG and hydro

Angola’s electricity network is constituted of three main independent systems (north, central and south), with the north system, which supplies the capital city of Luanda, representing around 80% of the whole electric power production of the country (almost one-half of all power produced serves Luanda).

Angola currently has an unstable grid, damaged by years of war. It is subject to frequent blackouts and reaches 30% of the population (see Figure 2), and only 9% in rural areas. For these reasons, both residents and businesses rely heavily on diesel generators for power (approximately one-third of businesses in the capital Luanda and 90% of those outside the capital use private power generation via diesel generators). Angola has ~13 larger diesel power generation plants, with capacity totalling approximately 2,400 MW, almost all of which are owned by the government utility.

The Angolan government aims to reduce this reliance on diesel generators and meet rapidly growing demand for electricity (expected to increase by ~12.5% per year between 2017 and 2025) by approximately quadrupling 2014 installed capacity to total 9.9 GW by 2025, with a strong focus on hydropower and natural gas. The ambition is for hydropower to reach 6.5 GW of installed power (66% of the total). Current hydropower capacity is around 1.8 GW, rising by an additional 2, 070 MW once the Lauca Dam is completed (expected 2018). LNG is expected to reach 1.9 GW (19% of the total) with the doubling of capacity at Soyo and the conversion to natural gas of several turbines and combined cycle plants in the provincial capitals (illustrated in Figure 2). Also, an additional 800 MW of wind and solar (~8%), and 700 MW of ‘other thermal-based’ generation (~7% of total generation) are planned.

Angola has enormous potential for domestic natural gas exploitation, with estimated reserves at the end of 2015 of 308 bcm, however huge scope remains to increase its gas infrastructure and networks. However, systemic issues such the building of networks and processing facilities, developing effective markets and pricing, as well as defining ownership rights to natural gas resources must be addressed if natural gas it to become a significant source of power generation. As such so far local availability of gas for power generation has been very low. There have also been problems expanding generation from LNG due to the Soyo plant shutdown (so that design flaws could be fixed). In addition, since the ambition is for LNG to provide peak / back up generation for much of the time for hydro, it may not be deemed economical to convert all diesel plants.

The government preferred ‘balanced’ plan of grid infrastructure expansion (see Figure 1) aims to reach the goal of 60% electrification. With this target, it is expected that a total of 3.7 million consumers will be connected in 2025 (more than three times the present number). It plans to do this through a more than doubling of the length of transmission infrastructure to 2500 km, unifying 3 separate transmission systems, and rebuilding war-damaged networks. The electrification effort will focus on provincial capitals and their urban areas – covering 130 municipalities, whilst also extending the grid to outside large urban areas to allow for the electrification of the majority of municipal townships – a total of approximately 1.7 million people. However, the outlook still looks to a small increase in decentralised, isolated systems such as small hydropower, PV systems and diesel generators to supply electricity where these alternatives exist or when distances per consumption unit are too high. These isolated systems are expected to serve ~1% of the population. There may be a small opportunity here therefore for LPG to displace the diesel portion of this increase in decentralised, isolated generation to reduce fuel costs for these municipalities.

Policy & regulatory framework– Focus is on the development of its considerable hydro resources, however the continuing lack of grid coverage and the opening of the market to private players could give LPG an opportunity.

The Ministry of Energy and Water (MINEA – who manage the electricity sector) has dedicated $29 billion to construct large infrastructure projects to increase power generation and improve grid infrastructure. Much of this is directed towards hydro. Angola’s energy sector has traditionally been characterised by strong public activity, with state companies acting throughout the value chain, but this is gradually changing with private player participation in diesel generation and mini-hydro projects. That said, Angola remains a notoriously difficult country in which to do business – with the lowest ranking in the Ease of Doing Business Index in the SADC region. Poor quality supply and high T&D losses also inhibit cost recovery for generators. The government is aware of this, and has put in place a public private partnership law as well as changing its general electricity law in an effort to promote private sector involvement.

As well as producing LNG from its offshore gas resources, Angola’s Soyo facility also produces propane and butane to supply both domestic and export markets. The facility has storage tanks capable of holding 88,000 m3 of propane and 59,000 m3 of butane, with a jetty dedicated to propane, butane and condensate loading and a second jetty for pressurised butane loading which serves the domestic market. As Figure 3 illustrates, total production exceeds domestic demand, and there could be scope therefore for Angola to utilise this excess for domestic power generation.

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